IFRS 16 Leases

​The IASB and the FASB (the Boards) are jointly developing a standard that would be applied in accounting for lease transactions. The aim of the project is to ensure that assets and liabilities arising under leases are recognised in the statement of the financial position.

In August 2010, the IASB and the FASB published jointly the first Exposure Draft on Leases for public comment (the 2010 ED). The proposed requirements would supersede IAS 17 and replace IFRIC 4. EFRAG's draft comment letter and final comment letter are available on the EFRAG’s project page.

In July 2011, after a series of re-deliberation sessions, the Boards decided to re-expose the revised proposals for standard on leases.
The Boards published a revised exposure draft on 16 May 2013 with a 120-day comment period (the 2013 ED).

In June, July and August 2013, EFRAG staff organised and took part in a number of outreach events with users and preparers of the financial statements. The feedback statements from those events may be found in the ‘Documents’ section on this page.

In July and August 2013, EFRAG with ANC, DRSC, FRC, and the OIC carried out a field-test on how the proposed requirements would affect classification and measurement of leases. That exercise was focused on practical application of the new requirements and intended to collect solely facts and objective data on the application difficulties encountered by the participants.

EFRAG discussed and approved its final comment letter during the EFRAG TEG meeting in October 2013. In its final comment letter EFRAG noted that it remains supportive for the project and believes that the right-of-use model applied to the right population of leases has the potential to bring useful information to users about lease arrangements. EFRAG, however, had significant concerns on the proposals and did not recommend finalising the Standard on the basis of the Exposure Draft. In particular EFRAG:

• disagreed with the dual measurement model for lessees; 
• believed that the receivable and residual model raises issues that need to be investigated; 
• believed that the proposals are far from reaching an appropriate cost-benefit balance and that significant simplifications are needed, such as exempting numerous small ticket lease arrangements from the requirements and strengthening the application of materiality when accounting for leases.

EFRAG emphasised the need to ensure that constituents have a good understanding of the objectives of the project and what economic phenomena the IASB intends to depict in the primary financial statements. EFRAG recommended taking advantage of the discussion on the Conceptual Framework to clarify the conceptual basis and the definition for right-of-use assets.

In January and February 2014, EFRAG with ANC, DRSC, FRC, and the OIC carried out a limited survey on the simplifications to the accounting requirements proposed by the 2013 ED. All respondents except one considered that simplifications were needed on a broad and systematic basis. The detailed results of this survey may be found in the ‘Documents’ section on this page.

On 30 June 2014, EFRAG with ANC, DRSC, FRC, and the OIC launched an additional public consultation and asked constituents for:

• examples of transactions that would qualify as leases under the proposals, but that in the constituents’ view are in substance services and therefore should not be recognised on a lessee’s balance sheet; and
• constituents’ views on the two alternative approaches proposed by the Boards in the re-deliberation process.

Respondents provided several examples of transactions that would qualify as leases under the 2013 ED proposals, but in constituents’ view should not be recognised on a lessee’s balance sheet and expressed a split support for the IASB or FASB approach. Still, some respondents indicated that they would support neither of them. Users expressed their support for the core principle of recognition of leases and their preference for the IASB approach.

In February 2015, the IASB completed its re-deliberations on the project except for the effective date.

In July 2015, EFRAG, the IASB and the National Standard Setters AAT, ANC, ASCG, FRC and OIC launched a public survey on impact of the forthcoming new IFRS on Leases on financial covenants in loan agreements. A report summarising the results of a public survey was issued on 9 December 2015.

In October 2015, the IASB staff published a Project Update: Definition of a Lease providing an overview of how a lease will be defined in the IASB's new Leases Standard, and also including a working draft of the application guidance and accompanying illustrative examples to be included in the forthcoming Standard on the definition of a lease.

Following this publication, EFRAG initiated a fieldwork to identify whether the definition of a lease criteria are understandable and practical to apply. The results of the fieldwork showed that the judgment required is not unusually difficult overall, although there are certain aspects of the supporting guidance that are relatively more complex to apply.

IFRS 16 Leases was published on 13 January 2016.

On 5 July 2016, EFRAG organised a joint outreach event with user organisations. The purpose was to stimulate discussion and obtain the users' perspective on the main changes introduced by IFRS 16. The feedback report on the event can be read here.

EFRAG conducted the consultation on its endorsement advice in two phases.

In October 2016, EFRAG published a Preliminary Consultation Document (PCD) regarding the endorsement of IFRS 16 and a questionnaire seeking the views of users and user organisations on a number of issues in relation to its assessment on costs and benefits and whether IFRS 16 is an improvement over IAS 17.

In February 2017 issued a Draft Endorsement Advice (DEA), including an assessment on European public good, taking account of:

• Comments from constituents in response to EFRAG's PCD and user questionnaire;
• Additional research undertaken in respect of the impact of IFRS 16 on SMEs;
• Findings from the economic study commissioned by EFRAG; and
• Expert advice from the European Central Bank and the European Banking Authority (EBA) in their areas of expertise.

In the DEA, EFRAG's overall initial assessment was that IFRS 16:

• Meets the qualitative characteristics of relevance, reliability, comparability and understandability, leads to prudent accounting, and it is not contrary to the true and fair view principle;
• Would improve financial reporting and would reach a cost-benefit trade-off that is acceptable. EFRAG has not identified that IFRS 16 would have major deleterious effects on the European economy, including financial stability and economic growth. Accordingly, EFRAG assessed that adopting IFRS 16 is conducive to the European public good.   

After considering the feedback received in response to its consultation, EFRAG issued its Final Endorsement Advice on 27 March 2017 reiterating its assessment that IFRS 16 meets all technical endorsement criteria of the IAS Regulation and is conducive to the European public good. EFRAG therefore recommended its endorsement.

On 9 November 2017, European Commission Regulation 2017/1986 adopting IFRS 16 was published in the EU Official Journal.